The administrative complaint filed by Secretary of State William Galvin claims Merrill Lynch, Pierce, Fenner & Smith — the main subsidiary of Merrill Lynch & Co. — aggressively sold the securities while downplaying the risks.

Auction-rate securities have their interest rates set at periodic auctions, depending on the submitted bids. The investments were once considered safe, but the market collapsed in February amid turmoil in the credit markets.

The market's failure left many investors with their cash frozen as buyers dried up.

New York-based Merrill Lynch denied it defrauded investors.

"We are disappointed that Massachusetts filed this action because it ignores the only reason our advisers sold auction rate securities: they believed they were good investments for clients willing to trade some liquidity for higher return," the company said in its statement.

"The inarguable fact is the number of auctions that had failed in nearly two decades of (auction-rate securities) sales was small. In 2007 there were no failed auctions of securities sold to retail clients and, in fact, none to these clients until late January 2008."

But Galvin claims in the civil complaint that Merrill Lynch knew several months earlier "that auction markets were not functioning properly and were, in fact, in significant danger of collapsing." He said the company continued to aggressively promote the securities as safe.

The complaint cites a personal e-mail written by one Merrill Lynch executive on Nov. 19. "Market is collapsing. No more $2k dinners at CRU," said the e-mail, referencing a Manhattan restaurant.

The complaint also alleges that Merrill Lynch "co-opted" its research department by allowing its sales and trading managers to push for written research to be published "endorsing the safety and high quality" of auction-rate securities.

Merrill Lynch also denied that allegation.

"Our research reflected the honest belief that ARS offered higher returns in exchange for less liquidity and noted that market changes had begun to occur," the company said.

Galvin said the complaint seeks an order for Merrill Lynch to make restitution to investors and pay an administrative fine.

"Our principal concern is to make people whole, particularly individuals and small businesses who have been completely upended by this," Galvin said.

"We want Merrill Lynch to undo the damage they did by selling these things knowingly to people, telling them they had liquidity ... then leaving them stranded when they knew these auction markets were in trouble."

The complaint will be heard by a hearings officer within the Securities Division of Galvin's office. Merrill Lynch can appeal any finding in court.

It is the second action brought by the Securities Division since the market collapsed. Last month, a similar complaint was brought against UBS Financial Services.

so i guess saying phrases like "GM bankrupsy not impossible" is not an acceptable rumor to start, along with other companies they slammed

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I don't see any correlation between (alledgedly) pushing shaky investments and making a statement on whether something in the business world is possible or not.

"Market is collapsing." does not specifically say the 'auction-rate securities market'.

lol...

haha well if u look at my signature, you'll notice, that someone said pontiac will be dead in 5 years, and you said:

lol

anything is possible in the business world... the collapse of enron was a suprise to most, and it looked handsome until it did...

and many other companies are drug through the mud when they have every fighting chance to survive.

i guess its like my pltn sgt says... if you have everything 'tight and right' nobody looks closely, aka toyota, but as soon as things start to slip or slide, you get every weazel trying to figure out your flaws...

and they posted some pretty terrible losses... and why would you want to take advice, investment recomendations from a company that cant even profit themselves... granted its a terrible market... but... berkshire is still going strong except for a few of its assets...

So you would prefer to take investment advice from Buffet- go ahead. As one man, he's obviously accomplished a great deal and you would probably do well. But -as with M-L- I'm sure he too has never claimed to be infallible.

But if all business news was clear & open, there never would be wild daily swings in price- released info changes the picture continuallly. EX: BK A was down $2050 today.

BTW- I've read analyst's predictions that Buick was soon to be dead since the '80s... for whatever that's worth.

So you would prefer to take investment advice from Buffet- go ahead. As one man, he's obviously accomplished a great deal and you would probably do well. But -as with M-L- I'm sure he too has never claimed to be infallible.

But if all business news was clear & open, there never would be wild daily swings in price- released info changes the picture continuallly. EX: BK A was down $2050 today.

BTW- I've read analyst's predictions that Buick was soon to be dead since the '80s... for whatever that's worth.

hrmm didnt know buick has been on the deathwish list for so long...

I appologize for siting birkshire or warren as a success over merril lynch, but... i guess he doesnt have to buy and sell when the mutual funds or hedge funds do. i guess i've been reading to much benjamin graham and warren buffett recently... lol... back to my book...